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We used to have SME Relief and Large Companies Relief. The latter was replaced by the Research and Development Expenditure Credit or RDEC.
It is the only relief that non-SMEs or large companies can claim.
It will also potentially be relevant for any SME companies that cannot claim SME relief for various reasons. These circumstances might include:
Qualifying expenditure for large companies is largely the same as for the SME. However, there are some minor modifications.
The tax relief is provided in a different manner.
A % of the qualifying expenditure is brought in as a trade receipt. This both:
The same amount is then given as a tax credit versus the resulting corporation tax liability (after the adjustment above).
The percentage rate was 12% for expenditure occurred up to end of March 2020.
From 1 April 2020, this has increased to 13% as announced at Budget 2020.
A large company has taxable profits of £1m for year end 31 March 2020
It spends £150k on qualifying R&D projects.
It makes a claim for RDEC
Step 1: Bring in £18k (£150k x 12%) making taxable profits = £1.018m
Step 2: Tax at 19% = £193,420
Step 3: Deduct credit of £18,000
Tax due: £175,420 (£193,420-£18,000)
Generally, there is no relief where a large company subcontracts R&D to another person.
We’ve seen earlier that the SME company doing the work can claim RDEC relief in these circumstances.
Again, must be made within 2 years of the end of the relevant accounting period.
If you have any queries about RDEC, or R&D tax relief at all, then please do not hesitate to get in touch.